Labour: PM's 'good news' misleading

Cameron says take-home pay is rising, but ONS data shows household incomes unlikely to rise before next election

• PM calls for patience on workers' pay
• Bank governor: no early interest rate rise
• Poll: has your take-home pay increased?

  Cameron's 'good news' about rising incomes is misleading says Labour

  PM says take-home pay is rising, but IFS boss says incomes will not hit pre-recession levels before next election
  • Rowena Mason, political correspondent
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  • theguardian.com, Friday 24 January 2014 10.43 GMT

  

  David Cameron claims there are signs the squeeze on household budgets is lifting. Photograph: Wpa Pool/Getty Images

  Labour has accused the government of using highly selective figures to show that average pay is rising, as David Cameron claimed there were signs the squeeze on household budgets was lifting.
  Ministers released new data on Thursday night showing that take-home pay had risen faster than prices between April 2012 and April 2013.
  Before a key speech on the economy, the prime minister called on people to be patient about living standards, arguing that they were slowly beginning to get better.
  Cameron told the BBC: "We are seeing some positive signs in terms of take-home pay. But it's going to take time. We need to be patient and work through our economic plan so it's a recovery that lasts and benefits everyone."
  Cameron urged people to bear in mind that Britain was "recovering from the longest and deepest recession in living memory".
  "I think it will be sustainable if we deal with the problems that we had before the recovery came," he added.
  However, a word of caution about the government claims came from Paul Johnson, director of the Institute for Fiscal Studies, who said they were contradicted by official data on earnings from the Office for National Statistics watchdog.
  He also said it was "pretty clear" that incomes would not return to their pre-recession levels before the next election.
  Speaking on BBC Radio 4's Today programme, he said: "The government has used a perfectly sensible set of numbers, which are its definition of take-home pay. Using the survey it's looking at, that clearly shows that from April 2012 to April 2013, gross pay for most people went up faster than CPI inflation, and it's important that there are different measures of inflation they could have used, and that happened for most people, when you take into account the increase in the personal allowance, then yes, over that period, according to that dataset, those people are getting better off.
  "But there are two problems with this that one needs to take into account. First, actually, we have other sets of data. The ONS publishes an average weekly earnings index. That went up really quite a lot less quickly than inflation in the most recent months, and of course, they're not taking into account things like benefits which are occurring over time. So if you're looking at household incomes that will be different from what's happened to take-home pay."
  Johnson said people might now not be getting worse off, but he suggested living standards were still a long way from recovery.
  "We will be able to say definitively, pretty sure, that come 2015, average household incomes will be lower than they were pre-recession, and lower than they were in 2010."
  Ed Miliband, the Labour leader, also entered the argument, tweeting that "all the PM does by telling Britain there isn't a cost of living crisis is show millions of people he doesn't understand their lives".
  Cathy Jamieson, a Labour shadow Treasury minister, accused the government of trying to avoid the reality of a cost-of-living crisis, as the figures "do not show the impact of things like cuts to tax credits and child benefit".
  "It's not a question of ignoring the statistics," she told the same programme. "If we want to look at the figures, the truth is that under this government real wages have fallen by £1,600 a year and the IFS's figures show families are an average of £890 worse off as a result of tax and benefit changes. I think … that is hitting people hard."
  However, Matthew Hancock, a business minister, defended his department's use of the take-home pay figures and argued that living standards were beginning to improve.
  "To say people are worse off now than the great recession is of course true because national income fell by over 7% and you would expect that automatically to have an impact on people's purse, on people's wallets," he said. "But what these figures show is that is just starting to abate."
  No 10 is hopeful that a gradual increase in living standards and return to growth will undermine Labour's argument about the cost-of-living crisis before the next election.
  In a speech to business people in Davos, Switzerland, the prime minister presented his most optimistic long-term vision of the UK economy for many years on Friday, saying Britain could become "the reshore nation" with businesses bringing production back to the UK.
  He said: "There is no doubt that when it comes to reshoring in the US, one of the most important factors has been the development of shale gas, which is flooring US energy prices with billions of dollars of energy cost savings predicted over the next decade.
  "I believe these trends have the ability to be a fresh driver of growth in Europe too. I want Britain to seize these opportunities. I think there is a chance for Britain to become the reshore nation."
  In response, Chuka Umunna, the shadow business secretary, highlighted a growing trade deficit.
  "Any help for manufacturers is welcome after three damaging years of flatlining and in a month where factory orders have fallen back.
  "But after so many government schemes have failed to deliver for business, manufacturers will want to see what this one offers in practice."
  
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